A client who was not informed by her solicitors that pre-trial costs had exceeded £5m has successfully sued the firm for breach of duty.
Inventor Deborah Forster had brought a claim against City firm Reynolds Porter Chamberlain after it acted for her in litigation and advised her to accept payment of £350,000 outside court. In the event, just £50,000 of this was paid by her opponents, who were eventually made bankrupt.
Forster alleged that former RPC legal director Michael Ballinger advised her to accept the sum and that it would be paid to her in priority to any payment of costs. She alleged that RPC acted in breach of duty and negligently by failing to inform her that costs had escalated to more than £5.3m, failing to advise her of the benefits – and cost – of using a Deloitte partner as an expert witness and failing to advise her adequately of the merits of a particular funding agreement.
In Forster v Reynolds Porter Chamberlain LLP Mr Justice Fancourt ruled that there was a 55% chance that Forster could have recovered a sum double that for which she agreed to settle. He awarded damages of £192,500, being 55% of the £350,000 that was agreed but could not be enforced.
The judge noted there was ‘no doubt’ that RPC failed adequately to keep Forster informed of the fees it was incurring in the build-up to the trial in 2011 (although no loss was caused by this breach of duty). She discovered the amount only from reading an ATE insurance proposal and is not liable for any RPC fees.
Ballinger said the fees were not a matter to concern Forster, since the firm had been retained on a no win, no fee basis. But the judge said this overlooked the risk to her of the shortfall between the chargeable fees and disbursements and the costs recovered from her litigation opponents eating into any compensation.
‘The answer for RPC cannot be that they acted on a “no win, no fee” CFA because the CFA expressly requires RPC to give Ms Forster the best information possible about the likely costs of her claim,’ said Fancourt. ‘The staggeringly high level of costs, as compared with the value of the claims, self-evidently impacted the cost-effectiveness of the case.’
The court also heard that Forster had taken out a loan (known as the Deacon loan agreement) at a late stage of proceedings to pay her expert witness. The lender was a firm called Giltspur Capital, controlled by John Deacon. RPC and Giltspur had operated together on previous cases and Ballinger had assisted Deacon to pitch for funding business. At about the time of the alleged breaches of duty, RPC agreed in principle to invest £500,000 in a Giltspur fund.
The judge said RPC had a ‘clear conflict of interests’ in acting for Forster and Deacon, adding: ‘The conflict went further than acting for two clients whose interests in a transaction conflicted because RPC had its own interest in the business of Giltspur and in working with Mr Deacon, which it did not disclose to Ms Forster at any time.’
He added that RPC was ‘preferring’ Deacon’s and its own interests over those of Forster, both when the funding agreement was made and when her litigation opponents defaulted on payment.